Seagate at TD Cowen Conference: Strategic Moves in Storage

On Wednesday, 28 May 2025, Seagate Technology PLC (NASDAQ:STX) participated in TD Cowen’s 53rd Annual Technology, Media & Telecom Conference. The discussion, led by CFO John Luca Romano, highlighted Seagate’s strategic initiatives amid a positive market cycle. While the company is optimistic about growth and profitability, challenges such as maintaining competitive margins were also addressed.

Key Takeaways

• Seagate is advancing its HAMR technology, with plans for 40% of nearline exabytes sold through HAMR products within the next year.
• The company is nearing its $5 billion debt reduction goal and plans to restart share buybacks soon.
• AI is driving increased storage demand, benefiting Seagate’s market position.
• Seagate’s diverse manufacturing footprint supports its strategic goals without significant new hiring.
• Gross margin improvements are anticipated, driven by technology transitions.

Financial Results

• Exabyte Growth: Seagate expects robust exabyte growth, driven by technological advancements rather than increased unit production.
• Gross Margin Target: The company aims for a 40% gross margin in the coming quarters, with a 50% incremental margin target at $2.6 billion in revenues.
• Debt Reduction: Seagate is close to its $5 billion debt reduction target and plans to resume share buybacks shortly.
• CapEx: Capital expenditure is maintained at 4-6% of revenue to support technology transitions, with no plans to increase unit production.
• Revenue: Sequential revenue growth is anticipated throughout 2025, supported by build-to-order processes.

Operational Updates

• HAMR Technology: Three major cloud service providers have qualified HAMR drives, with all large cloud customers expected to qualify within the next year. HAMR products are expected to account for 70% of nearline exabytes sold in two years.
• Manufacturing: Seagate operates a diverse manufacturing network across the US, Northern Ireland, Singapore, Malaysia, Thailand, and China, with recent rehiring but no significant new hiring planned.
• Acquisition: The integration of Intevac, focusing on granular hammerheads, is progressing smoothly.

Future Outlook

• Demand: Strong demand is expected, with build-to-order providing early visibility on potential cycles.
• AI Impact: AI applications are driving increased storage demand, both for data retention and generation.
• Enterprise Demand: Enterprise demand for hard drives is projected to remain stable.
• Capacity: Increased capacity is anticipated through higher capacity HAMR drives, not increased unit production.

Q&A Highlights

• Sustainability of the Cycle: The current cycle is seen as sustainable due to industry consolidation and disciplined CapEx management.
• Inventory Levels: Inventory levels are healthy, with customers willing to purchase extra volume at higher prices.
• OpEx Scalability: Operational expenses can be adjusted based on build-to-order visibility.
• Gross Margin Comparison: While Seagate’s gross margins currently trail behind competitors, improvements are expected with HAMR adoption.
• China Market: The VIA market in China is showing signs of recovery, with stronger quarters anticipated later this year.

Readers interested in more details can refer to the full conference call transcript.

Full transcript - TD Cowen’s 53rd Annual Technology, Media & Telecom Conference 2025:

Krish Sankar, Analyst, TD Cowen: I’m Krish Sankar with TD Cowen and the next company presenting is Seagate. We’re fortunate enough to have John Luca Romano, the CFO. John Luca, thank you for your time. Really appreciate And last week you guys had a very good Analyst Investor Day here in New York. Just wanted to quickly, like is there any couple of things you want to highlight from the Analyst Day that key takeaways that investors should remember?

John Luca Romano, CFO, Seagate: Yes. I would say the main messages that we wanted to give to our investors and also to the analysts is this industry is growing very well. The demand is strong, especially in the nearline space. We are developing a new technology called HAMR. We are already qualified three main customers on HAMR product.

And we are quickly moving to second generation of product and qualifying more customers in the next several months. So the trend out of the prior down cycle is continuing. The industry is very consolidated. The focus, at least on our side, is on continuing to improve not only our revenue, but also our profitability and continue to focus on what is the most important things in this industry that is technology and technology transition. And we think if we execute well on those items, we will have very good results in the next several years.

Krish Sankar, Analyst, TD Cowen: Got you. And on that one of the questions that keeps coming up is obviously sustainability of the cycle. And if you go back, I think this cycle or like the past cycle troughed around September of twenty twenty three and has been like growing pretty nicely since then. But if you compare it to prior nearline cycles, five, six quarters into it, the cycle starts to wobble. Kind of curious how you think about this cycle?

And is there a way to compare and contrast versus prior cycles because people just worry about the sustainability of this cycle.

John Luca Romano, CFO, Seagate: Yes. Of course, every cycle is a bit different. This is a technology industry, so now we expect from time to time to have different cycles. There are differences in the industry in general. Now if you look, for example, how we model the expectation for exabyte growth and revenue growth, you can see there is they’re much closer right now compared to what they were in the past.

And if you look at the exabyte trend, even in the last ten years, Really, exabyte grew for every year except for the down cycle we had in calendar twenty two, twenty three. So really, exabyte always grew. The revenue was a little bit different, a little bit more bumpy, but was not a matter of exabyte. It was a matter of how you manage that exabyte growth with your pricing. Now as I said before, the industry is more consolidated.

Demand is above supply, But it’s not a lot of CapEx going into this industry. I think the industry is very disciplined on how CapEx is managed and how units are headed. I would say the increase in exabyte volume are coming from technology. They are not coming from more units. So all of this, I think, will help in several aspects.

One is to extend the cycle. The industry is not taking all the demand that is available today. So some of the demand will continue to shift out in future, keeping the cycle going. And of course, now this has also an implication on how many cycles eventually we will have, how frequent are those cycles. So I think it’s a great improvement, not only for us, but for the industry in general.

And of course, we try to leverage as much as we can on our new technology. So try to generate more exabyte from the units that we have and try to grow with the demand. And it’s not easy because as as you know, demand is growing very rapidly. But I think, you know, if we execute well our transition to the future product based on on the MR technology, we can be close to that growth. And so keeping benefit from the right level of supply demand balance and from the growth generally that will help our revenue.

Krish Sankar, Analyst, TD Cowen: Got you. I think one other thing that’s kind of interesting in this cycle, I guess, is maybe on top of like your hyperscalers adding capacity, there’s probably an AI angle to it too. There is some view that that incremental AI side is helping the longevity of the cycle, but also heard the other side of the story, which is that once hyperscale has rationalized their storage needs, then it’s going to come down pretty sharply and that might be a negative.

John Luca Romano, CFO, Seagate: Yes. I would say there are different aspects from AI and there are different benefits to this industry from AI. I would say the first benefit is already present today, is already part of this up cycle, that is retention period. People, companies, government are not deleting data anymore. They keep all the possible data because they want to use AI, and they know that AI will give you a better result if you can access a bigger pool of data.

So this is already part of, you know, today growth. What is still not part of the growth, I think, is the vast volume of data that will be generated by AI itself. So not by humans anymore, but by AI application. And the transition from data in form of text to data in form of video, but of course consume a much higher level of exabytes. But I think now will happen in the near future.

It’s still a bit difficult to estimate how much it will be. So we have our estimate of the exabyte growth for the next two or three years, but AI could be a big variable. It could be another upside to that forecast.

Krish Sankar, Analyst, TD Cowen: Got you. I had a couple of more like cycle related questions. Another one is when you look at where your cloud customers’ hard drive inventories are today versus say three or six months ago, where do you think they are compared to

John Luca Romano, CFO, Seagate: one or two quarters In this industry, inventory is always a bit complicated because hard disk usually are installed in a data center. So the difficult part is to understand how much they are utilizing in the data center. Is a data center has a low utilization rate, of course, that could be considered like inventory. It’s actually storage capacity that is available for for the future. So it’s it’s not easy in this industry to completely understand inventory.

That is not only what, you know, customers eventually have in the warehouse, but it’s usually very small number of drives. What what we know is demand is strong. And when we have a little bit of extra volume, customers want to buy that extra volume at a higher price. So we don’t have the any indication that inventory is growing.

Krish Sankar, Analyst, TD Cowen: Mhmm.

John Luca Romano, CFO, Seagate: The build to orders are actually growing in volume. So in January, when as the earning release in January, when we discussed a little bit about the calendar ’25, we said based on the build to order, we actually see revenue increasing sequentially through the calendar year, and that will help us with even a better profitability. So that this has not changed. So So far, we don’t have any evidence that customers are reducing their demand or they are increasing their inventory. I think there is still a lot of appetite for storage.

Krish Sankar, Analyst, TD Cowen: Got it. And I mean, in a hypothetical scenario, let’s just say, cloud demand does decline next year 10% or 20%. How easy is it for you to scale down OpEx? And any how to think about the COGS implication?

John Luca Romano, CFO, Seagate: Well, I would say the build to order should help us to have an early visibility on the eventual cycle because customers have to place a build to order if they have too much inventory or for any reason they need less data storage, they should start to put that lower volume into their future build to order. And as I said, until now, have not seen it. But if we have visibility on what they want, you know, three, four quarters from now out in time, we can of course prepare our internal structure to support that volume. Much better than what happened in the past when, you know, we were to be surprised by the change in orders. And now one quarter was very high and the next quarter suddenly went very low.

But we had a lot of WIP, so a lot of inventory inside our manufacturing that, no, you need to finish and then you need to sell to someone that actually doesn’t really want that volume and that has a big impact on pricing. So this is also why build to order is important to us is, you if there are cycles, the ability to manage that cycle in advance will help us to have the right structure, have the right internal inventory and so go through the cycle with no much lower impact than what we had in the past.

Krish Sankar, Analyst, TD Cowen: Got you. When you look at the nearline cycle or the nearline demand, I don’t know, maybe 30%, forty % of that is probably enterprise versus the majority being hyperscalers. The bull argument is that the enterprise spending cycle has really not started. So there’s a long runway to that down the road. The bare argument is eventually enterprise demand for hard drives could probably go away.

Enterprise might be more SSD and most of the hard drive would be done at the hyperscalers. So I’m kind of curious like where you stack between those two. Is there a risk that enterprise demand for hard drives goes away?

John Luca Romano, CFO, Seagate: Yeah. We don’t see that happening. Of course, we have built to order also with enterprise OEM, so we don’t see that happening. Honestly, in general, for us, it’s not so important. Who is the customer?

No. We produce the same RDX drive independently from who is the customer. So if data is stored into on prem data center, so with enterprise OEM, or it is stored in the public cloud, no real difference. So right now, we don’t we don’t see this change in the enterprise OEM. I think AI will have some impact on that.

There is maybe a theory that’s saying more sensitive data will be on prem, so favoring the increase in the enterprise OEM business. And other theory that is saying public cloud because there’s a higher level of compute and more sophisticated cloud actually will finally attract also that part of the business. But again, for us, there’s not really any difference. No. For us, the important is what is the exabyte growth year after year and wherever we have to sell it, we will sell it.

Krish Sankar, Analyst, TD Cowen: Got you. Then maybe on HAMR, I think last week at the Analyst Day, you mentioned that three of the top eight CSPs have qualified HAMR. It also felt like you have confidence that the remaining five would probably qualify it by maybe by next year. How should we think about HAMR going mainstream? Do you think when once all eight of them qualify or is there another metric like 1,000,000 units a quarter, like how to think about HAMR and when it goes mainstream?

John Luca Romano, CFO, Seagate: Yes. In term of call, of course, we announced the two new customer qualifications. So we have now three in the cloud space. Dave said we will qualify all the big cloud customers in the next twelve months. Mhmm.

We also gave an indication of how Hemmer volume is go going to grow. And so our fiscal year is start next fiscal year is starting next quarter. So we said by the end of next fiscal year, so four quarters from now, we will have 40% of the exabytes sold in nearline, sold through AMR product. So it’s a fairly good part of the initial ramp. We also said in the following four quarters, we will go from 40% to 70%.

So let’s say between now and the next eight quarters, you will see a fairly important ramp of what we are going to sell in term of HAMR products.

Krish Sankar, Analyst, TD Cowen: Got it. I think Jean Luc asked this question in the past to it’s kind of more to do with like failure rates for HAMR. How to think about it vis a vis PMR, right? Obviously your customers look at PMR failure rate and then maybe HAMR has to be similar to that. Is there a way to quantify where HAMR failure rate is today versus relative to PMR?

And along the same path, as you go mainstream, is there any have you taken any accounting for reserves or things like that in case the failure rate on the field ends up being higher than expected?

John Luca Romano, CFO, Seagate: Yes. We don’t expect any higher failure rate. I would say, this is why we do qualification. You qualify. If you have a failure rate that is higher than what it should be, customers are not qualifying the drive.

And so we had an extended call with a fourth customer and a very quick call with the tools and following customers. Mhmm. So we think we have a very good configuration also for the cloud, And this has been qualified by now three big customers, and we don’t expect any difference between PMR or MR. It’s not a matter of the technology inside the drive.

Krish Sankar, Analyst, TD Cowen: Got it. So and you don’t feel like you don’t have to worry about having any reserves set aside or any such thing?

John Luca Romano, CFO, Seagate: No. Mean for every product that we sell, there is a there is not a reserve, but there is no real difference between the two.

Krish Sankar, Analyst, TD Cowen: Got it. Got it. And the other one that is kind of interesting is that I understand you said in the past, HAMR is gross margin accretive. You are vertically integrated. So in theory, you should have better margin profile.

But yet when you compare it to WD, you’re still like a few hundred basis points below. Now I understand obviously you’ve been ramping HAMR, which probably has a negative impact on yield. Is that the main reason and now that HAMR goes main or are there also any other things that worry about nuances that the early call of a customer for Hammer, maybe some sweetheart deals were given or things like that?

John Luca Romano, CFO, Seagate: But obviously, I don’t have all the details about the gross margin of of our competitor. They’re obviously doing a very good job on their part. I would say we were very focused on HEMR, and HEMR took longer than what we were thinking in term of going through the fourth quarter. So we lost it a bit of time. If we had HEMR a year ago, probably we were already at a different level of gross marginals.

But we lost a little bit of time. We probably lost a little bit of also focus on the last PMR product. So the 24 terabyte CMR and 28 terabyte SMR, we were clearly a little bit late to the market. But we have those products now and we are transitioning to MR. So as we said at the Analyst Day, our profitability is going to increase and fairly rapidly.

Krish Sankar, Analyst, TD Cowen: Got Maybe I’ll just pause to see if anyone in the audience had any questions. If not, I’ll just continue. Then I think one of the so I think one of the things you said last week was you do expect to reach 40% gross margin in a few quarters and then the incremental 50% gross margin hit like $2,600,000,000 in revenues. In that assumption or the incremental gross margin 50%, is there any Hammer mix we had to assume or is it just a more straight off thing that just think the drop is going to happen when you start getting to those revenue levels?

John Luca Romano, CFO, Seagate: No, there is Hammer. For sure, Hammer is one of the contributor factor of the continual increasing gross margin. Of course, the the volume of HEMR is the same that we communicated in terms of the ramp. So 40% of the exabyte sold in the next four quarters and then continue to grow from there. So, yeah, Emery is is one of Emery in term of transition to continue to transition to higher capacity.

That was no different than what we did in the past. But of course, MR is giving us the opportunity to continue to do it and to do maybe even faster than what happened before.

Krish Sankar, Analyst, TD Cowen: Got you. And if you go back a couple of quarters ago, when you looked at your exabyte shipment versus your competitors, it kind of felt like the share was more like sixty-forty kind of a thing. You’re probably more high-30s, low-forty percent market share versus them being much higher. Is it fair to assume that probably goes in your favor with Hammer? Or do you think that given that you have large customers like the hyperscalers, they will try to manage a rational duopoly versus giving you a lion’s share of the market, even though WD is technically maybe two years or even longer behind you?

John Luca Romano, CFO, Seagate: Well, we don’t know how customer will allocate their their exabyte. I would say we are not increasing our units of what we produce, which is as a media. But those as a media will generate a much higher level of exabyte because of the transition to higher capacity product. So we will have an increase in the exabyte sold. I don’t know how competition will do and what they will do in the same time.

So if they have the same growth, I guess we will have a similar market share in term of exabyte. If they grow less, they will have probably a little bit less market share, but it’s not really important. No. Demand is covering supply from, I think, the entire industry at this point. Customer will have to buy product from us and product from competition, and and they will manage as as is their need in the specific time frame that they are assessing.

Krish Sankar, Analyst, TD Cowen: Got you. And last week, I thought Dave kind of made an interesting point. I think he said for every one exabyte deployed, it’s roughly 42,000 units of PMR or 25,000 units of HAMR. As your mix shift starts going towards HAMR, it feels like you probably don’t need any additional CapEx given what your installed capacity is for a pretty long time. Is that a fair assumption?

Or do you think at some point you need to think about adding more capacity?

John Luca Romano, CFO, Seagate: No. As I said before, we right now, we are not planning to really produce more units. We think that moving our manufacturing from lower capacity drive to higher HEMR capacity drives will give us enough exabyte growth to stay very close to demand. So now the demand is growing as a certain CAGR that we indicated at the Analyst Day, we think through technology transition, can increase our exabyte fairly close to that number. So CapEx that we indicated into that range between 46% of revenue is, of course, to replace equipment that are becoming old and to help with the technology transition, not really to increase the number of units that we will produce.

Krish Sankar, Analyst, TD Cowen: Got you. And if you do as you scale up HAMR, is there any other because I remember during the down cycle, both you and your competitor brought on the capacity, but it looks like there’s also some personal layoffs that were done with regards to personnel and things like that. Would that need to scale up? Or do you think you don’t envision that happening, I. E, you don’t need to hire more folks to scale up manufacturing?

John Luca Romano, CFO, Seagate: I would say in term of units, we are fairly full at this point. So we rehired a certain number of people in manufacturing in the last maybe seven, eight quarters. No. I don’t think we will have to hire many more at this point. No.

The factories are fairly full. So we are good. In OpEx, the reduction was mainly coming from going from developing two technology to one technology. So more than a year ago, we announced that we were stopping the development of PMR products and we just focused on HEMR. But at that point, we had two teams, one working on PMR and one working on MR.

So we moved some people, of course, from PMR into the MR team, but we also reduced the overall level of R and D, and we also did few reduction in SG and A. But at this point, we think we have the right level of resources. So I think we are fairly good.

Krish Sankar, Analyst, TD Cowen: Got And when I look at your manufacturing footprint, if I remember right, I think you have Minnesota, Ireland, Thailand and Singapore. It’s more like a tariff related question because I know I think the disks in heads are probably done in Singapore different now. They’re spread out. How easy or fungible is in manufacturing if you had to shift it around in case tariff things gets out of hand?

John Luca Romano, CFO, Seagate: Well, I would say we have several manufacturing sites, but they mainly do different things. Mhmm. So we have two sites producing ads. One is in US. One is Northern Ireland.

We have one site for the media that is in Singapore. And we have one site for substrate that is actually Malaysia. And we have two sites for assembly and final test. One in Thailand, which is a big volume, and one which is smaller, which is in Wuxi, China that we use for what we sell in China. So it’s it’s not that we can really move different part of manufacturing into the, you know, the sites that we already have that that is probably not not happening.

But with the right time, we can move some of the manufacturing in in different locations if our locations, for some reason, get penalized in a disproportional way on the tariff.

Krish Sankar, Analyst, TD Cowen: Got you. And on China, how is the VR market in China? If I remember, I think several years ago, prior the peak used to be close to, I think, like $1,000,000,000 run rate on a quarterly basis or something from China. Do you think you get back to those levels? Or how do you think how is that market evolving today?

John Luca Romano, CFO, Seagate: It’s starting to recover. I would say, if I look back few quarters, September, December, they were fairly good quarters. March is seasonally low. As you know, those companies work on projects and the budget for those projects is usually approved in the fourth quarter of the calendar year and then get deployed through the rest of the year. So we see a bit improvement already in this quarter compared to March.

But usually, the strong quarters for video and image application are September and December. So we know we will we will probably have some upside from Via in the in the near future.

Krish Sankar, Analyst, TD Cowen: Is the way to think about that business, is it more a function of China macro? Like as China macro gets better, the VI demand in China is going to get better too? Or is there some other nuance for that business?

John Luca Romano, CFO, Seagate: I would say China macro is very important. I would say also worldwide macro economy. Many projects that are developed and deployed by those customers are not in China. They are actually in other part of of the world. So depend also on how many projects are approved in different cities, in, you know, different companies that use via for quality control or other manufacturing reason.

So in general, it tend to trends more with how the economy is doing, particularly in China, but not only.

Krish Sankar, Analyst, TD Cowen: Got you. And I think a couple of months ago, you guys announced or did the acquisition of Intevac, which is very interesting, though I should say not completely surprising because you bought like ten, twelve years ago, Zyrtecs on the testing side. So there is a history of vertical integration. If I remember correctly, I think Intevac does the iron platinum coatings via granular hammerheads. How is that integration going?

And I think your friends at WD also use that. So how to think about their you know, what’s gonna happen there?

John Luca Romano, CFO, Seagate: Well, it’s it’s a fairly easy integration. It’s a fairly small company.

Krish Sankar, Analyst, TD Cowen: Mhmm.

John Luca Romano, CFO, Seagate: There are not many people, so it’s much easier to integrate. The main location is Singapore where we are already present. So not not a difficult acquisition. Seagate was more than 90% of the revenue of Intevac. So was making sense to us to integrate that team with the rest of our manufacturing and is progressing fairly well.

There are other suppliers that can do what Intevac is doing. So I’m sure competition will have other opportunities.

Krish Sankar, Analyst, TD Cowen: Got you. I mean because it seems like the other suppliers that there in Japan or whatever it is don’t seem to have the same. They haven’t invested as much in these iron, platinum, thin film compared to Intamax, so

John Luca Romano, CFO, Seagate: don’t know, I cannot comment. I’m not expert enough in that. What I know is there are competitors and I think they have a very similar product.

Krish Sankar, Analyst, TD Cowen: Got Maybe one other thing, think last week you kind of mentioned that you’re going to start doing buybacks over the next few quarters. In the past, the goal is always like you want to bring down debt to $5,000,000,000 Is that still the goal? Or do you think that it had come to the point where might as well start doing the buybacks?

John Luca Romano, CFO, Seagate: No, that’s still the goal and we are very close. So we did a treasury transaction this quarter. So we are fairly close to that goal. We have also taken the time in the last three, four quarters to rebuild a little bit our working capital that during the down cycle was a little bit stretched. So now we think in few quarters we will generate very good free cash flow and we can possibly restart on share buyback.

Krish Sankar, Analyst, TD Cowen: Got it. All right. I think that we’re out of time. Thank you very much, John. I appreciate Thank you.

Thank you.

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